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Thinking of filing for bankruptcy? Leary of credit card counseling services? Here are a few points you may wish to consider before making your decision.

Bankruptcy

1) To file for bankruptcy, you will first need to obtain the legal services of an attorney. Legal fees can be excessive, and in many cases it will take up to 6 months before your case is heard before a judge.

2) Under the new Bankruptcy Abuse and Prevention Act of 2005 (BAPCPA), Federal law mandates that a person filing for bankruptcy must obtain credit counseling services before being approved.
3) Under BACPA, a chapter 7 filing will remain on the filer's credit report for 10 years, random audits will be performed and financial education is mandated.

Credit Counseling Services

1) An approved, non-profit agency will work to negotiate deals with your credit card issuers. As opposed to negotiating yourself, credit card issuers are more willing to lower rates and/or set up payment plans with an agency as they are worried your debt may get absolved unless they make concessions.
2) Yes, credit counseling will harm your credit. Typically, once the counseling agency negotiates with the credit card issuers, they will ask you to stop your credit card payments, skip a few and then begin making one lump payment (other options are available that are less damaging to your credit, depending upon the agency.) However, the damage to your credit usually only lasts for a couple of years, and does not nearly approach the level and length of damage caused by bankruptcy.
3) You will no longer be able to use the credit cards under counseling services. Think of this as a good thing, and a protection from any further expenditure.

Both options do some damage to your credit, so weigh your choices carefully. Make an informed decision. Research web sites such as Nolo that offer legal advice (http://www.nolo.com/article.c fm/objectID/1BC4C77D-6C6F-4C9C -B1FC51CA4DE14F8F/213/161/128/ ART/) or the US Trustee program (http://www.usdoj.gov/ust/eo/b apcpa/index.htm) for more information.

Learn more about this author, Martin J. Stephens.
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